Faculty of Economics and Business Administration Publications Database

Do Information Rents in Loan Spreads Persist over the Business Cycles?

Mattes, Julian A.
Steffen, Sascha
Volume: 43
Number: 2
Pages: 175 - 195
Month: April
ISSN-Print: 0920-8550
Link External Source: Online Version
Year: 2013
Abstract: In this paper, we seek empirical evidence for information rents in loan spreads by analyzing a sample of UK syndicated loan contracts for the period from 1996 to 2005. We use various measures for borrower opaqueness and control for bank, borrower and loan characteristics and we find that undercapitalized banks charge approximately 34 bps higher loan spreads for loans to opaque borrowers. We further analyze whether this effect persists throughout the business cycle and find that this effect prevails only during recessions. However, we do not find evidence that banks exploit their information monopolies during expansion phases.